Mitchell

Background
On 22 February 2013 the applicant purchased Erf, 296 Wonderboom Township, Gauteng at a sale in execution. It had a total historical municipal debt, including municipal debts older than two years of R232, 828.25, a dispute arose and after paying the outstanding municipal debt not older than two years a certificate was issued, leaving an outstanding balance of historical debts older than two years of R106,219.75.

Applicant subsequently sold the property, but the municipality refused to open an account for the supply of municipal services until the outstanding debts were paid in full. The purchaser was not prepared to proceed with the purchase until this issue was resolved, leading to the application.

Case for the Applicant
Applicant contended that the respondent’s lien in terms of section 118(3) of the Municipal Systems Act is a charge upon the property which “should be enforced over the property and/or the previous owner only”. Therefore the applicant and/or his successors in title could not be held liable for the payment of historical municipal debts older than two years and which had been incurred by previous owners or occupiers of the property, therefore the respondent is obliged to open a municipal account for subsequent owners for municipal services.

Case for the Respondent
Respondent contended that the security for non prescribed debts afforded by section 118(3) is a charge on the property, are secured by the property, survive and are enforceable against subsequent successors in title. Therefore as long as the historical debts remain unpaid, the supply of municipal services can be refused.

Discussion
Three issues were considered

1. Whether the respondent’s right of security is still effective after the transfer of the property into the name of the applicant.

Section 118(3) specifically provides that the amount due is a charge on the property and enjoys preference over any mortgage bond registered against the property, as such it is a limited real right of security created by statute in favour of the municipality – a lien having the effect of a tacit statutory hypothec. See Tshwane Metropolitan Municipality v Mathaba 2013 (4) SA 319 (SCA) at 325 (par 12).

Relying on the authority of Mathabathe and City of Johannesburg v Kaplan N.O. and Another 2006 (5) SA 10 (SCA) applicant contended further that for the right should have been enforced “over the proceeds of the sale in execution”. In both these cases there was already a realisation or liquidation of the property concerned, however Fourie J turned to Voet, and it appears that, [at 13]:

“… in terms of the common law, when mortgaged properties have been sold and delivered ‘on the petition of creditors by order of a Judge’ (which is another way of referring to a sale in execution), the hypothec is extinguished and the new owner will be granted a clean title. This is in my view, still the law today.”

Since respondent was aware of the sale prior to transfer as it was requested to issue a section 118 certificate, yet did not exercise its right of preference over the proceeds of the property in terms of its statutory hypothec and failed to explain why, it follows that the hypothec was extinguished with the sale in execution and subsequent transfer of the property into the name of the applicant.

2. Historical debts: Who is now the debtor post transfer, or is the applicant now a co-debtor with the principal debtor for historical debts older than two years?

Here the point was made that a statutory hypothec is a security for payment of a debt and as a form of real security it should not be confused with the principal obligation (historical debts older than two years), which continue to exist and are not affected by the loss of security, as the former is dependent on the latter.

“Furthermore [at 16] the property cannot be substituted for the principal debtor because things cannot be the bearer of rights and obligations. Therefore, under these circumstances and in the absence of an agreement to that effect, the applicant (or his successor in title) has not become a co-debtor with regard to the principal debt and is not liable for the payment of historical debts incurred by previous owners or occupiers.”

3. Opening of a new account: The real issue here is not the opening of an account, but whether respondent is entitled to refuse the supply of municipal services as long as there is an outstanding debt on the property.

Since none of the Respondents By-laws (Standard Electricity Supply By-law, Water Supply By-law, Credit Control By-law and the Credit Control and Debt Collection Policy) referred to by counsel deal specifically with the issue, interpretation by the court was necessary.

The Electricity Supply By-law defines a “consumer” who is liable for the payment of municipal services as the occupier of any premises or the person who has entered into a valid agreement with the municipality or if such person does not exist or cannot be traced, the owner of the property. While the definition of “owner” in relation to immovable property means the person registered as such in the office of the registrar of deeds. No indication is given that this definition includes his successors in title.

The Water Supply By-law also, does not indicate that a subsequent owner is also liable for a debt which was incurred in the past when another person was the owner, since if that was so, the Legislature could have said so. A customer or occupier of the premises can remain the same person notwithstanding different owners from time to time.

The Credit Control and Debt Collection policy too, gives no indication that the definition of an “owner” also includes a successor in title with regard to outstanding debts. It provides that:

[at 26] “… notwithstanding payments by the applicant of the outstanding amounts for the preceding two years provided for in subsection (1) of section 118, the clearance certificate ‘will be withheld until the applicant or transferring attorney, as the case may be, has provided sufficient security to the Finance Department to the effect that upon day of registration of transfer the outstanding amount will be paid’. No doubt, if the intention was the supply of services to the new owner (or his successor in title) may be refused as long as there is historical debt outstanding with regard to the property, this was an opportune moment to have included such a stipulation. Fact of the matter is there is no such provision. ”

It was further pointed out that in terms of section 152(1)(b) of the Constitution, a municipality has a constitutional duty to ensure the provision of services.

In conclusion
It was declared that:

The security provided by section 118(3) of the Systems Act, No 32 of 2000 in favour of the respondent was extinguished by the sale in execution and subsequent transfer of the property into the name of the applicant.

The applicant (or his successor(s) in title) is not liable for the payment of outstanding municipal debts older than two years and which were incurred by his predecessor(s) in title.

The respondent has no right to refuse the supply of municipal services only because of such debts.

Reader Comments:

Mbula
12/10/2014:

This is a great judgement which sets a precedent for some of us who do not have the means to fight the municipality or attorneys in instances where you are held liable for a debt you were never part of. In my situation its even worse because I only got to know about such a debt when wanting to sell to someone else and I am presumed liable for something I had no idea it existed in the first place. I believe the municipality and the transferring attorneys have a moral obligation to inform potential buyers of what lies ahead since there is no way one would have this information unless if someone is responsible enough to inform buyers. We are all equal in the eyes of the law and it is there to defend the innocent people like myself.

Ken Mustard
13/10/2014:

The newspaper articles I have read overlook the fact that in this matter the property was sold at a sale in execution which is an important limitation in the judgment and the articles create the impression that it applies to all sales. The public are therefore going to be under a misapprehension as to the effect of the judgment.

Deirdre Fibiger
14/10/2014:

To MBULA: Attorneys always require a Rates Clearance certificate prior to transfer - and then settle any arreas on the account. The problem is that municipalities are failing to keep accurate records and then further arrears are uncovered later. There is no one that can protect buyers from that To KEN MUSTARD - I agree. I believe the judgement should have taken into consideration the entire scenario and ruled on the matter as a whole. Now we are still left with unresolved possibilities

DAT
16/10/2014:

To Ken: which is perhaps why the judgement was marked as being unreported and not of interest to other judges!

greg harrison
17/10/2014:

Surely the situation is dealt with in terms of subsection (5) which states: (5) Subsection (3) does not apply to any amount referred to in that subsection that became due before a transfer of a residential property or a conversion of land tenure rights into ownership contemplated in subsection (4) took place?

Peter Livanos - New Ventures Consulting & Services
17/10/2014:

Its a pity many media houses and various parties are making the same mistake the municipalities originally made, with the City of Tshwane vs Mathabathe judgment, by performing : "surgery" on the wording and not taking all into context properly... SO MANY PEOPLE THINK ALL OUR WORRIES ARE OVER...This judgment, is simply a step in the right direction, and our fight is still ahead of us... It is shocking to note though, that even in the cases of Sheriff Sales in Execution and Liquidations, certain municipalities have arrogantly elected to ignore the judgment and are still continuing with "creative collection policies" and not being in the "business of being fair", as mentioned on national TV when Carte Blanche interviewed them!!!

Mandi Hamman
17/10/2014:

Peter, it seems to me that this judgment supports the contention by the Municipality that historical debts may be recovered from successors in title (provided the property was sold in the ordinary course of business) as the Court found, in terms of our common law, immovables subject to a special hypothec pass subject to their burden, except when sold in execution. So I'm not sure if it's a step in the right direction. Greg, in my opinion the "transfer of a residential property" in subsection 5 refers to the transfer of a residential property i.t.o. subsection 4(a), which doesn't include private sales.

Peter Livanos
20/10/2014:

Mandi, I know it seems that way and that is exactly why our firm is trying to get the message out there that our worries are far from over as many people are trying to imply. For this reason, as mentioned on Carte Blanche investigation, SALGA has made it clear what their intentions are and for this reason, we (New Ventures Consulting & Services), have launched several court cases (including a Class Action) based on s118(3) in the NGHC that hopefully will be heard before the end of the year. Unlike the Mitchell case above these cases specifically address the constitutional aspects as well as the common law aspects of this issue. If successful, these matters may finally resolve this problem.

Peter Livanos
21/10/2014:

EXTRACTED FROM PRESS RELEASE ON LIVANOS GROUP WEBSITE: City of Tshwane vs Mathabatha: Recent Fourie Judgment between COT & Mitchell Perregine Joseph Mitchell v City of Tshwane Metropolitan Municipal Authority Case No: 50816/14, North Gauteng High Court, Pretoria (8 September 2014) The various press releases regarding the City of Tshwane v Mathabatha matter and now the Fourie Judgment between COT and Mitchell is causing further problems and ambiguity. Not to mention that certain municipalities have still chosen to still ignore this Judgment.

It is clear that the Courts must make a direct ruling on all matters after same has been thoroughly canvassed in the various Courts. NVCS’ Applications to Court covers all these aspects, including the un-constitutional behaviour of the Municipality. Municipalities that are forcing various owners to pay the previous owners debts are creating a monster for themselves. Once the Court settles this unnecessary and manufactured version, the various Municipalities may be at risk, because an Order will be sought, that all incorrect payments that they received will have to be refunded with interest.

By the time this matter is finalised the Municipalities may be at risk of paying back billions to various consumers, institutions etc. NVCS and their legal team which consists of very experienced and competent advocates are adamant that the Municipalities contention/actions will fail. NVCS will keep the public updated as the matter proceeds. Concerned rate payers must contact New Ventures if Municipalities try and force their incorrect interpretations and contentions. Peter Livanos New Ventures Consulting & Services a Division of the Livanos Group

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